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Question
When price of a good rises from Rs 8 per unit to Rs 10 per unit, producer supplies 40 units more. Price elasticity of supply is 2. What is the quantity supplied before the price change? Calculate
Solution
Given that
P = Rs 8, P1 = Rs 10 and E2 = 2
Change in quanitity supplied (ΔQ) = 40
ΔP=P1 - P
=10-8=2
Price elasticity of supply `(E_s)=(DeltaQ)/(DeltaP)xxP/Q`
`2=40/2xx8/Q`
`2=160/Q`
2Q = 160
Q = 80 units
Initially, the quanitity supplied was 80 units i.e. before the price change.
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